Oil & gas sector calls FM's budget negative

Scrips of RIL, ONGC down

The Finance Minister's announcement for the oil and gas companies did not cheer key players in the industry.

Industry players gave a thumbs down to FM's  proposal to review the oil and gas exploration policy and move from profit sharing to revenue sharing contracts. 

"The proposal to the move from profit sharing model to revenue sharing model marks substantial increase in risk profile for exploration and production companies. From an overall perspective, Budget 2013 has a negative bias for oil and gas industry," said Nabin Ballodia, Partner-Tax, KPMG India.

Also, increase in withholding tax rate for royalty and fee for technical services as well as surcharge rates would increase overall cost for oil and gas companies.

"The measures announced were expected and are as per the Rangarajan Committee recommendation. However, for more risk to be taken its better to have a cost sharing basis, as whatever we spend on exploration we can get it back if a discovery is made. However, here the risk is that whatever we spend may not be totally recovered and will be linked to revenue sharing," said Ananth Kumar, Director Finance, Oil India.

However, government's commitment  to introduce stability in natural gas pricing, encourage exploration and production of shale gas and clear stalled NELP blocks are some positive steps.

"As regards, subsidy for the PSU Oil Marketing Companies (OMCs), adequate provision seems to have been made as seen as by provision of Rs 96891 Cr for 2012-13, which should account for around 60 per cent of Gross Under Recoveries of the industry. The balance 40 per cent should be manageable with upstream companies largely bearing the same and a small share to be borne by the companies themselves," K Ravichandran, senior VP, Co-head corporate sector rating, ICRA Ltd

"Subsidy provided for 2013-14 (BE) is Rs 65012 Cr which should be sufficient if the decision of diesel price partial decontrol is fully implemented as envisaged, as diesel was accounting for almost 60% of GURs for the industry. However, if crude oil prices were to further rise and under recoveries persist on diesel, more subsidy will be required," added Ravichandran.

The industry has been seeking--- tax holiday for exploration and production activities relating to natural gas including coal bed methane (CBM); extension of the benefit under section 80-IB(9) of the Income Tax Act from 7 years to 10 years to companies engaged in production of mineral oil and natural gas -2.66 per cent and benefit under section 80-IB(9) of the Act not to be restricted only to blocks licensed under a contract awarded till March 31, 2011 and the period March 31, 2011 be extended till March 31, 2017.

RIL was down 2.08 per cent at Rs 813.90 and ONGC was down 1.32 per cent at Rs 311.05 on the Bombay Stock Exchange.